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Services business still wary about outlook

Activity in the services sector remains weak amid business uncertainty about the outcome of the federal budget and the state of the economy.

The Australian Industry Group's Australian Performance of Services Index (PSI) was almost unchanged in August, rising by just 0.1 of a point to 49.4.

A reading below 50 indicates the sector is contracting. The lower the number, the faster the contraction.

For the third consecutive month, the only increases in activity was in the health and community services sub-sector, along with finance and insurance, accommodation, cafes and restaurants.

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Ai Group chief executive Innes Willox said other parts of the services sector were feeling the impact of weakness in manufacturing and the fall in mining-related construction activity.

"Businesses across the services sectors remain hesitant to put on new staff ahead of more convincing signs of a pick-up," he said.

"Services businesses remain very cautious about the economic outlook and continue to keep tight control of input purchases, with the supplier deliveries, stocks and employment sub-indexes all continuing to contract in August."

However, a small rise in sales and new orders across the sector could be a sign that there could be an improvement for services businesses in the months ahead, Mr Willox said.